Jonathan Seitler QC and Miriam Seitler debate moot points in property law – this time, it’s the law on recovery of fees for estate agents.
Question: Is the law too tough on estate agents?
YES: Jonathan Seitler QC, barrister at Wilberforce Chambers, says:
1. For most professionals, recovery of fees is a relatively straightforward task. All that has to be proven is a retainer (agreement) under which the professional is engaged to work, for payment. But for reasons lost in time, four – four! – additional hurdles are put in front of the estate agent when it comes to recovery of commission.
Not only does the estate agent have to prove the contract for the payment of commission with the client (usually the vendor of property) but in addition, it has to prove: (i) compliance with the statutory information required to be given relating to commission; (ii) that a contract pre-dates the triggering event; (iii) that such contract responds to a commission-triggering event (usually a sale); and (iv) that its efforts are the “effective cause” of that sale. These additional hurdles make life hard for estate agents, as if it’s not hard enough already.
2. In relation to the first additional hurdle, the provisions of the Estate Agents Act 1979 and the Estate Agents (Provision of Information) (the 1991 Regulations) will apply to any agency contract and will require certain information to be given in any estate agency contract.
The duties under those rules are to give particulars of the circumstances in which the client must pay remuneration to the estate agent for carrying out estate agency work (section 18(2)(a) of the 1979 Act); to give details of the amount of that remuneration or, if the amount is unknown, how it will be calculated (section 18(2)(b)) – such as by percentage of the sale price; and to give particulars of any payments that do not form part of the estate agent’s remuneration for carrying out estate agency work and the circumstances in which those other payments will become payable (section 18(2)(c)).
This is potentially perilous because a failure to comply with section 18 of the 1979 Act renders a contract unenforceable. The estate agent may have done everything it was asked to do, in double-quick time with efficiency and élan, but if the requisite information hasn’t been given beforehand, no payment will be due. It’s a triumph of process and pedantry over service and value.
3. The second additional hurdle was spelt out and applied by the House of Lords in the leading case of Luxor (Eastbourne) Ltd v Cooper [1941] AC 108. The agreement to pay commission must come before the event which triggers that commission to avoid the “consideration” being past.
This means that unsolicited information about a property cannot give rise to a commission even if it leads the client to purchase that property. The agreement must be in place first: see, for example, Lady Manor Ltd v Fat Cat Café Bars Ltd [2001] 2 EGLR 1. If it’s not, again, no fee for the estate agent, however much work it has done to close the deal. This is tough, especially when, as we all know, good deals are quick deals.
4. I n respect of the third additional hurdle, under a traditional multi-agency agreement, where the agent is one of several agents, the trigger is usually the introduction of a purchaser who completes. In a sole agency agreement, it is usually the occurrence of the sale during the period of the sole agency, however that sale occurs. If the specified event occurs, the agent will be paid; but if not, again there is no payment, however much work has been done.
5. On to the fourth additional hurdle of “effective cause”. The general rule, in most usual cases where the estate agent’s commission is based on a percentage of the purchase price, is that unless the express terms of the contract clearly state otherwise, an estate agent must prove (the burden being on the agent – see Chasen Ryder & Co v Hedges [1993] 1 EGLR 47) that its efforts are the effective cause of the commission-triggering event: Foxtons Ltd v Bicknell [2008] EWCA Civ 419; [2008] 2 EGLR 23.
So even if the contract between the estate agent and the client does not expressly require the agent to be the effective cause of the transaction, such a requirement is likely to be implied. The law views an implied term to that effect as likely to minimise the risk of a vendor being liable for two estate agents’ commission: see County Homesearch Co (Thames & Chilterns) Ltd v Cowham [2008] EWCA Civ 26; [2008] 15 EG 178 . Further, as Lord Neuberger held in Foxtons, an express reading of the expression “a purchaser introduced by us” as meaning “a person who becomes a purchaser as a result of our introduction” is both sensible and consistent with the intent of the statutory rules which constitute the first additional hurdle.
All in all, the result is that the law is tough on estate agents. A retainer is not enough, like it is for surveyors and solicitors. An agent’s life has four layers of rules which potentially deprive it of reasonable remuneration for an honest day’s work. What’s the possible justification for that?
NO: Miriam Seitler, barrister at Landmark Chambers
1. It’s all very well you taking up the cudgels for estate agents like that, but let’s not forget who these rules are meant to protect – the consumer.
Of course, the source of the “additional hurdles” as you insist on calling them, is something invented by, and totally for the benefit of, the estate agents themselves, namely the weird fact that estate agents traditionally charge fees not by the hour or on the basis of a profit margin on cost, like everyone else, but by reference to success.
And that suits them because such fees have traditionally been at a level which, especially when fixed as a percentage of ever-increasing property values, are, in absolute terms, very large indeed. So of course statute has had to intervene to ensure that those who do successfully acquire property with the assistance of an estate agent are, at the very least, clear about the fees to which they are being exposed.
Where’s the scandal there?
2. Furthermore, the information which the estate agent is required to give is minimal. These are not difficult rules to comply with, using a bit of organisation.
The information must be: (i) particulars of the circumstances in which the client must pay remuneration to the estate agent for carrying out estate agency work; (ii) the amount of that remuneration or, if the amount is unknown, how it will be calculated (ie whether on a percentage or flat fee basis); (iii) particulars of any payments that do not form part of the estate agent’s remuneration for carrying out estate agency work and the circumstances in which those other payments will become payable; and (iv) the amount of those other payments or, if the amount is unknown, an estimate of the amount and how it will be calculated.
There are also requirements under the 1991 Regulations for certain terms, such as “sole agency”, “sole selling rights” and “ready, willing and able purchaser” to be defined in such pre-agreement documentation. The schedule to the 1991 Regulations sets out definitions of these terms, for estate agents to use in their estate agency agreements.
This really should not be hard and most agents manage to comply with these simple requirements most of the time.
3. It’s true that if the estate agent does not comply with these requirements that a contract could become unenforceable. That, however is really a bit theoretical because the court also has the power, pursuant to section 18(6) of the 1979 Act, to permit a contract to be enforced, at its discretion. Whether that discretion is exercised in favour of the estate agent will depend on the prejudice caused to the consumer by, and the degree of culpability for, the estate agent’s failure to comply with the information obligations.
One circumstance in which an agreement which does not comply with section 18 might nevertheless be enforced is where the client does not suffer prejudice from the estate agent not having set out the information required in writing because that client has seen such terms regularly, as part of a course of dealing: see Benhams Ltd v Kythira Investments Ltd [2004] EWHC 2973 (QB); [2004] PLSCS 307.
The court can also order the client to be compensated for prejudice caused by the agent’s failure to comply with the information obligations, by reducing or discharging any sum otherwise payable by the client: see Great Estates Group Ltd v Digby [2011] EWCA Civ 1120; [2011] 3 EGLR 101.
So much for the much vaunted “first additional hurdle”.
4. The second and third so called additional hurdles, meanwhile, are just incidences of contractual terms.
If the estate agent wants to make the trigger event the unconditional exchange of a legally binding contract, it can. Those terms are in its hands. And that will work. With wording like that, following the making of a binding contract, commission is payable even if the client breaches the contract and decides not to complete the sale: Alpha Trading Ltd v Dunnshaw-Patten Ltd [1981] 1 QB 290. Even where the parties have omitted to identify the event that triggers the obligation to pay commission, the court will go to great lengths to interpret the contract (or imply a term into that contract) so as to make it sufficiently certain and enforceable: Wells v Devani [2019] UKSC 4; [2019] EGLR 16.
5. I accept that the requirement that the agent is an “effective cause” of the transaction is something that seems to arise mainly in estate agents’ contracts only. But so what? It is just an expression of the obvious common sense need for there to be a causal link between the agent’s efforts and the coming into existence of the transaction. The agent must show that it actually brought about the triggering event. Normally, if the agent introduces the successful purchaser to the transaction, that agent is likely to be regarded as the effective cause. There are legal restrictions on estate agents’ recovery of fees. But nothing too burdensome or surprising given the potential rewards and their position opposite consumers.
